SEC Filing | Surmodics, Inc.

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2000 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________ to ___________ Commission File Number 0-23837 SurModics, Inc. (Exact name of registrant as specified in its Charter) MINNESOTA 41-1356149 (State of incorporation) (I.R.S. Employer Identification No.) 9924 West 74th Street Eden Prairie, Minnesota 55344 (Address of principal executive offices) Registrant's telephone number, including area code: (952) 829-2700 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No __ The number of shares of the registrant's Common Stock, $.05 par value per share, outstanding as of July 31, 2000 was 7,833,725.

PART I - FINANCIAL INFORMATION Item 1. Financial Statements SURMODICS, INC. Condensed Balance Sheets (In thousands, except share data) June 30, September 30, 2000 1999 ------------------ ----------------- ASSETS (Unaudited) CURRENT ASSETS: Cash & cash equivalents $1,326 $1,975 Short-term investments 12,825 3,947 Accounts receivable, net 1,441 1,433 Inventories 562 459 Prepaids and other 850 260 ------------------ ----------------- Total current assets 17,004 8,074 ------------------ ----------------- PROPERTY AND EQUIPMENT, net 7,103 5,275 LONG-TERM INVESTMENTS 9,338 15,917 DEFERRED TAX ASSETS 1,588 2,465 OTHER ASSETS, net 209 227 ------------------ ----------------- $35,242 $31,958 ================== ================= LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $238 $710 Accrued liabilities 1,297 1,261 Deferred revenues 369 268 ------------------ ----------------- Total current liabilities 1,904 2,239 DEFERRED REVENUES AND OTHER, less current portion 125 -- ------------------ ----------------- Total liabilities 2,029 2,239 ------------------ ----------------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Series A Preferred stock- $.05 par value, 150,000 shares authorized; no shares issued or outstanding -- -- Common stock- $.05 par value, 45,000,000 shares authorized; 7,824,945 and 7,701,921 shares issued and outstanding 391 385 Additional paid-in capital 32,783 32,009 Unearned compensation (277) (267) Stock purchase notes receivable (7) (58) Accumulated other comprehensive loss (222) (187) Retained earnings (deficit) 545 (2,163) ------------------ ----------------- Total stockholders' equity 33,213 29,719 ------------------ ----------------- $35,242 $31,958 ================== ================= The accompanying notes are an integral part of these condensed balance sheets. 2

SURMODICS, INC. Condensed Statements of Income (In thousands, except per share data) (Unaudited) Three Months Ended Nine Months Ended ------------------ ----------------- June 30, June 30, 2000 1999 2000 1999 ---- ---- ---- ---- REVENUES: Royalties $2,296 $1,692 $7,149 $4,528 License fees 82 225 342 550 Product sales 1,226 1,126 3,648 2,916 Research and development 561 642 1,616 1,638 ------- ------- ------- ------- Total revenues 4,165 3,685 12,755 9,632 ------- ------- ------- ------- OPERATING COSTS AND EXPENSES: Product 478 381 1,340 1,060 Research and development 1,570 1,345 4,954 3,723 Sales and marketing 433 504 1,165 1,339 General and administrative 645 700 1,900 1,899 ------- ------- ------- ------- Total operating costs and expenses 3,126 2,930 9,359 8,021 ------- ------- ------- ------- INCOME FROM OPERATIONS 1,039 755 3,396 1,611 ------- ------- ------- ------- OTHER INCOME: Investment income, net 320 267 920 797 Gain (loss) on sale of investments 9 (2) (1) 92 ------- ------- ------- ------- Other income, net 329 265 919 889 ------- ------- ------- ------- INCOME BEFORE INCOME TAX PROVISION 1,368 1,020 4,315 2,500 INCOME TAX BENEFIT (PROVISION) (507) 194 (1,607) 743 ------- ------- ------- ------- NET INCOME $861 $1,214 $2,708 $3,243 ======= ======= ======= ======= NET INCOME PER SHARE: Basic $0.11 $0.16 $0.35 $0.44 Diluted $0.10 $0.15 $0.33 $0.41 WEIGHTED AVERAGE SHARES OUTSTANDING: Basic weighted average common shares outstanding 7,818 7,368 7,772 7,289 Dilutive effect of outstanding stock options 489 726 535 703 ------- ------- ------- ------- Diluted weighted average common shares outstanding 8,307 8,094 8,307 7,992 The accompanying notes are an integral part of these condensed financial statements. 3

SURMODICS, INC. Condensed Statements of Cash Flows (In thousands) (Unaudited) Nine Months Ended June 30, ----------------------------- 2000 1999 ------------- ------------- OPERATING ACTIVITIES: Net income $2,708 $3,243 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation and amortization 788 523 Amortization of unearned compensation, net 69 61 Change in deferred rent -- (30) Change in deferred tax 1,577 (747) Change in assets and liabilities: Accounts receivable (8) (295) Inventories (103) (86) Prepaids and other (590) (207) Accounts payable and accrued liabilities (436) (102) Deferred revenues 226 (121) ------------- ------------- Net cash provided by operating activities 4,231 2,239 ------------- ------------- INVESTING ACTIVITIES: Purchases of property and equipment, net (2,598) (4,018) Purchases of available-for-sale investments (20,792) (20,463) Sales/maturities of available-for-sale investments 18,458 21,383 Repayment of stock purchase notes receivable 51 96 ------------- ------------- Net cash used in investing activities (4,881) (3,002) ------------- ------------- FINANCING ACTIVITIES: Issuance of common stock, net 1 554 ------------- ------------- Net decrease in cash and cash equivalents (649) (209) CASH AND CASH EQUIVALENTS: Beginning of period 1,975 1,344 ------------- ------------- End of period $1,326 $1,135 ============= ============= The accompanying notes are an integral part of these condensed financial statements. 4

SURMODICS, INC. Notes to Condensed Financial Statements (Unaudited) (1) Basis of Presentation: In the opinion of management, the accompanying unaudited condensed financial statements have been prepared in accordance with generally accepted accounting principles and reflect all adjustments, consisting solely of normal recurring adjustments, needed to fairly present the financial results for these interim periods. These financial statements include some amounts that are based on management's best estimates and judgments. These estimates may be adjusted as more information becomes available, and any adjustment could be significant. The results of operations for the three months and nine months ended June 30, 2000 are not necessarily indicative of the results that may be expected for the entire fiscal year. According to the rules and regulations of the Securities and Exchange Commission, the Company has omitted footnote disclosures that would substantially duplicate the disclosures contained in the audited financial statements of the Company. Read together with the disclosures below, management believes the interim financial statements are presented fairly. However, these unaudited condensed financial statements should be read together with the financial statements for the year ended September 30, 1999 and footnotes thereto included in the Company's form 10-KSB as filed with the Securities and Exchange Commission. (2) New Accounting Pronouncements The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," and SFAS No. 137, "Deferral of the Effective Date of SFAS No. 133," which establishes accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. If certain conditions are met, a derivative may qualify for hedge accounting. Based on current operations, the Company anticipates that the adoption of SFAS No. 133 at the beginning of fiscal 2001 will not have a significant impact on its results of operations. (3) Comprehensive Income The components of comprehensive income for the three-month and nine-month periods are as follows: Three months ended Nine months ended June 30, June 30, -------------------------- -------------------------- (In thousands) 2000 1999 2000 1999 ------------- ------------ ------------ ------------- Net income $861 $1,214 $2,708 $3,243 Other comprehensive income: Change in unrealized loss on Available-for-sale securities 65 (141) (35) (453) ------------- ------------ ------------ ------------- Total comprehensive income $926 $1,073 $2,673 $2,790 ============= ============ ============ ============= 5

(4) Operating Segments Research & (In thousands) Licensing Manufacturing Development Corporate Consolidated ------------ ---------------- --------------- --------------- --------------- Nine Months Ended June 30, 2000 Revenues: PhotoLink $5,213 $1,730 $1,066 $ - $8,009 Diagnostic 2,278 - - - 2,278 Stabilization & other - 1,918 - - 1,918 Government - - 550 - 550 ------------ ---------------- --------------- --------------- --------------- Total Revenues 7,491 3,648 1,616 - 12,755 Expenses - 1,340 4,954 3,065 9,359 ------------ ---------------- --------------- --------------- --------------- Operating income (loss) 7,491 2,308 (3,338) (3,065) 3,396 Other income 919 919 Income tax provision (1,607) (1,607) --------------- Net income $2,708 =============== Nine Months Ended June 30, 1999 Revenues: PhotoLink $3,036 $1,295 $903 $ - $5,234 Diagnostic 2,042 - - - 2,042 Stabilization & other - 1,621 - - 1,621 Government - - 735 - 735 ------------ ---------------- --------------- --------------- --------------- Total Revenues 5,078 2,916 1,638 - 9,632 Expenses - 1,060 3,723 3,238 8,021 ------------ ---------------- --------------- --------------- --------------- Operating income (loss) 5,078 1,856 (2,085) (3,238) 1,611 Other income 889 889 Income tax benefit 743 743 --------------- Net income $3,243 =============== (5) 1999 Employee Stock Purchase Plan On November 15, 1999 the Board of Directors adopted, and on January 24, 2000 shareholders approved, the Company's 1999 Employee Stock Purchase Plan (the "Stock Purchase Plan"). The Stock Purchase Plan permits all full-time and part-time employees (including officers) of the Company to purchase stock of the Company. The Stock Purchase Plan does not allow an employee to purchase stock through the Stock Purchase Plan if immediately after the grant of an option, he or she would own stock representing 5% or more of the total combined voting power or value of all classes of the stock of the Company. The Stock Purchase Plan will terminate on February 28, 2010, unless the Board of Directors extends the term of the Plan. 6

(6) Stockholders' Equity On January 24, 2000, shareholders approved an amendment to the Articles of Incorporation to eliminate all references in the Articles to a class of Convertible Preferred Stock, shares of which were automatically converted as part of the Company's initial public offering in 1998. Additionally, the Amendment increased the total number of authorized shares of the Company to 50,000,000 consisting of 45,000,000 shares of Common Stock, $0.05 par value per share, 150,000 of Series A Preferred Stock, $.05 par value per share, and 4,850,000 undesignated shares. (7) Subsequent Event On July 6, 2000, the Company announced that it had entered into a licensing and development agreement with Motorola, Inc., granting the Motorola BioChip Systems unit exclusive rights to SurModics' proprietary PhotoLink technology for use in Motorola's biochips. The agreement was subject to approval by the Antitrust Division of the U.S. Department of Justice and Federal Trade Commission. Such approval has now been received, and initial payments due under the agreement, including both a license fee and equity investment, have been received by SurModics 7

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. General SurModics is a leading provider of surface modification solutions to medical device manufacturers. The Company's revenues are derived from four primary sources: fees from licensing its patented technology to customers; royalties received from licensees; the sale of photoreactive chemical compounds to licensees and stabilization products to the diagnostics industry; and research and development fees generated on projects for commercial customers and pursuant to government grants. Results of Operations Three Months Ended June 30, 2000 and 1999 Revenues. Revenues for the quarter ended June 30, 2000, were $4.2 million, an increase of $480,000, or 13%, over the same period of fiscal 1999. The revenue components were as follows (in thousands): $ Increase % Increase 2000 1999 (Decrease) (Decrease) ---- ---- ----------- ----------- PhotoLink revenue: Royalties $1,656 $977 $679 69% License fees 82 225 (143) (64%) Reagent chemical sales 624 520 104 20% Commercial development 398 412 (14) (3%) --- --- ---- Total PhotoLink revenue 2,760 2,134 626 29% Other revenue: Diagnostic royalties 640 715 (75) (10%) Stabilization & other products 602 606 (4) (1%) Government research 163 230 (67) (29%) --- --- ---- Total revenues $4,165 $3,685 $480 13% ====== ====== ==== Third quarter revenue growth was primarily a result of increased PhotoLink royalties and reagent chemical sales. The 69% growth in PhotoLink royalties was due mostly to increased sales of coated products sold by the Company's licensees. During the quarter, approximately 81% of the PhotoLink royalties received were earned royalties based on the clients' sale of coated products. The remaining royalties were minimum payments made to SurModics prior to a medical device reaching the market. Sales of reagent chemicals (those chemicals used by licensees in the PhotoLink coating process) increased 20% due to increased purchases by several licensees. Reagent sales to a single client decreased as anticipated, as a result of collaborative efforts to improve the client's processing efficiencies. While sales to this client continued to represent more than half of the reagents sold during the quarter, reagent sales to all other customers increased 71% over the same period last year. The Company signed two new license agreements in the third quarter and now has license agreements with 47 companies covering over 100 different products. Commercial development revenue decreased 3% from the same period last year. Both periods included one customer that accounted for over half of the development revenue recognized in that period. Diagnostic royalty revenue 8

decreased 10% and it is anticipated it will remain at lower than historical levels over the next several quarters until certain manufacturing issues of a licensee are resolved. Product costs. The Company's product costs were $478,000 for the third quarter of fiscal 2000, an increase of $97,000, or 25%, over the same period of fiscal 1999. Overall product margins decreased to 61% in the third quarter of fiscal 2000 from 66% in the same period of fiscal 1999. The margin decline was primarily due to higher scrap expense associated with production lots that failed to meet quality standards. It is expected that margins will return to recent levels in the third quarter. Research and development expenses. Research and development expenses were $1.6 million for the third quarter of fiscal 2000, an increase of $225,000, or 17%, over the same period of fiscal 1999. The change was primarily due to compensation and benefits associated with technical personnel added by the Company over the last year, increased facility cost due to the construction of additional laboratory space, and supplies cost to equip the new space. In addition, the Company recovered $120,000 from a client for legal fees associated with some patent infringement cases being pursued by that client. A portion of this recovery was allocated to general and administrative expenses. Sales and marketing expenses. Sales and marketing expenses were $433,000 for the third quarter of fiscal 2000, a $71,000 or 14% decrease from the same period of fiscal 1999. Increased promotional expenses were more than offset by decreased compensation and benefit costs due to open positions. The Company filled several of these positions early in the fourth quarter. General and administrative expenses. General and administrative expenses were $645,000 for the third quarter of fiscal 2000, a decrease of $55,000, or 8%, over the same period of fiscal 1999. The decrease was the result of decreased legal fees and investor relations costs. Income from operations. The Company's income from operations was $1.0 million for the second quarter of fiscal 2000, an increase of $284,000, or 38%, over the same period of fiscal 1999. Other income, net. The Company's other income was $329,000 for the second quarter of fiscal 2000, an increase of $64,000, or 24%, over the same period of fiscal 1999. The increase was due to higher investment balances in the current period. Income tax expense. The Company's income tax provision was $507,000 for the third quarter of fiscal 2000 versus a $194,000 income tax benefit recorded in the same period of fiscal 1999. Net income for the third quarter of fiscal 1999 included the reversal of income tax valuation reserves of approximately $572,000 reducing the Company's tax provision at statutory rates to a net credit of $194,000. Excluding the effect of the reversal of income tax valuation reserves, the Company's net income and diluted income per share would have been as follows on a proforma basis: Proforma -------- Three Months Ended June 30, --------------------------- 2000 1999 ---- ---- Net income before provision for income taxes $1,368,000 $1,020,000 Income tax provision (507,000) (378,000) ---------- ---------- Net income $ 861,000 $ 642,000 ========== ========== Diluted net income per share $0.10 $0.08 ===== ===== Other comprehensive income. The Company's other comprehensive income was $65,000 for the third quarter of fiscal 2000. This income was due to an 9

increase in the fair value of the Company's long-term investments available-for-sale. As of June 30, 2000, the Company had a net $222,000 unrealized loss related to those investments. Nine Months Ended June 30, 2000 and 1999 Revenues. Revenues for the nine months ended June 30, 2000 were $12.8 million, an increase of $3.1 million, or 32%, over the same period of fiscal 1999. The revenue components were as follows (in thousands): $ Increase % Increase 2000 1999 (Decrease) (Decrease) ---- ---- ----------- ----------- PhotoLink revenue: Royalties $4,871 $2,486 $2,385 96% License fees 342 550 (208) (38%) Reagent chemical sales 1,730 1,295 435 34% Commercial development 1,066 903 163 18% ----- --- --- Total PhotoLink revenue 8,009 5,234 2,775 53% Other revenue: Diagnostic royalties 2,278 2,042 236 12% Stabilization & other products 1,918 1,621 297 18% Government research 550 735 (185) (25%) --- --- ----- Total revenues $12,755 $9,632 $3,123 32% ======= ====== ====== The overall revenue growth of 32% for the first nine months was distributed across most operating segments but resulted primarily from a 53% increase in PhotoLink-related revenue. PhotoLink royalties increased 96% due to increased sales of coated products sold by the Company's licensees. In addition, the first quarter royalties included a one-time royalty payment of $225,000 from a client as the result of a license renegotiation. Approximately 80% of the PhotoLink royalties received during the period were earned royalties based on the clients' sale of coated products. The remaining royalties were minimum payments made to SurModics prior to a medical device reaching the market. Reagent chemical sales increased 34% due to growing production of PhotoLink-coated devices by SurModics' clients. SurModics signed seven new PhotoLink license agreements during the first nine months. The fees from these agreements, in addition to progress payments made on previously executed license agreements resulted in $342,000, a 38% decrease from the $550,000 recorded on the twelve license agreements signed in the same period last year. Stabilization and other product sales increased 18% from the same period in fiscal 1999. Product costs. The Company's product costs were $1.3 million for the first nine months of fiscal 2000, an increase of $280,000, or 26%, over the same period of fiscal 1999. Overall product margins are down slightly at 63% in the first nine months of fiscal 2000 from 64% in the same period of fiscal 1999. Increased labor and scrap costs have offset the efficiencies achieved through increased production volumes. Research and development expenses. Research and development expenses were $5.0 million for the first nine months of fiscal 2000, an increase of $1.2 million, or 33%, over the same period of fiscal 1999. The change was primarily 10

due to compensation and benefits associated with technical personnel added by the Company over the last year, increased operating cost of additional laboratory space, and supplies cost to equip the newly completed laboratory space. Sales and marketing expenses. Sales and marketing expenses were $1.2 million for the first nine months of fiscal 2000, a $174,000 or 13% decrease from the same period of fiscal 1999. The decrease is due to lower compensation and benefit costs due to open positions. General and administrative expenses. General and administrative expenses were $1.9 million for the nine months ended June 30, 2000, no change from the same period of fiscal 1999. Increased labor costs were offset by decreases in director and officer insurance premiums and investor relations costs. Income from operations. The Company's income from operations was $3.4 million for the first nine months of fiscal 2000, an increase of $1.8 million, or 111%, over the same period of fiscal 1999. Other income, net. The Company's other income was $919,000 for the first nine months of fiscal 2000, an increase of $30,000, or 3%, over the same period of fiscal 1999. An increase in investment income in the current period was offset by a decrease in realized gains on the sale of investments. The first nine months of fiscal 1999 included $92,000 of net realized gains from the sale of investments. Income tax expense. The Company's income tax provision was $1.6 million for the nine months ended June 30, 2000 versus a $743,000 income tax benefit recorded in the same period of fiscal 1999. Year-to-date net income for the nine months of fiscal 1999 included the reversal of income tax valuation reserves of approximately $1.6 million, reducing the Company's tax provision at statutory rates to a net credit of $743,000. Excluding the effect of the reversal of income tax valuation reserves, the Company's net income and diluted income per share would have been as follows on a proforma basis: Proforma -------- Nine Months Ended June 30, -------------------------- 2000 1999 ---- ---- Net income before provision for income taxes $4,315,000 $2,500,000 Income tax provision (1,607,000) (891,000) ---------- ---------- Net income $2,708,000 $1,609,000 ========== =========== Diluted net income per share $0.33 $0.20 ===== ===== Other comprehensive loss. The Company's other comprehensive loss was $35,000 for the first nine months of fiscal 2000. This loss was due to a reduction in the fair value of the Company's long-term investments available-for-sale due to increases in interest rates. As of June 30, 2000, the Company had a net $222,000 unrealized loss related to those investments. Liquidity and Capital Resources As of June 30, 2000, the Company had working capital of $15.1 million and cash, cash equivalents and investments totaling $23.5 million. The Company's investments principally consist of U.S. government agency obligations and investment grade, interest-bearing corporate debt securities with varying maturity dates, the majority of which are one year or less. The Company generated positive cash flows from operating activities of $4.2 million in the first nine months of fiscal 2000, which was an increase of 89% over the same period of last year, primarily due to net income and the change in the deferred tax asset as described above. Approximately $4.9 million of cash was used for investing activities during the first nine months compared to $3.0 million last year. 11

As of June 30, 2000, the Company had no debt, nor did it have any credit agreements. The Company believes that its existing capital resources will be adequate to fund the Company's operations into the foreseeable future. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company maintains an investment portfolio in accordance with its investment policy. The primary objectives of the Company's investment policy are to preserve principal, maintain proper liquidity to meet operating needs and maximize yields. The Company's investment policy requires investments with high-credit-quality issuers and limits the amount of credit exposure to any one issuer. The Company's investments principally consist of U.S. government and government agency obligations and investment grade, interest-bearing corporate debt securities with varying maturity dates, the majority of which are three years or less. All of the Company's cash equivalents and marketable securities are classified as available-for-sale securities. The securities held in the Company's investment portfolio are subject to interest rate risk. Changes in interest rates affect the fair value of the available-for-sale securities. The Company has determined that a hypothetical ten percent increase in interest rates would result in an approximate $225,000 decrease in the fair value of the Company's available-for-sale securities as of June 30, 2000, but would have no material impact on the results of operations or cash flows. SurModics does not use derivative instruments in its investment portfolio. Forward Looking Statements The statements contained in this quarterly report relating to future revenue growth and expense levels are based on current expectations and involve a number of risks and uncertainties. These statements are forward looking and are made pursuant to the safe harbor provisions of the Private Securities Reform Act of 1995. The following factors could cause royalty revenue to materially and adversely differ from that anticipated: the ability of the Company's licensees to successfully gain regulatory approval for, market and sell products incorporating the Company's technology; the amount and timing of resources devoted by the Company's licensees to market and sell products incorporating the Company's technology; the Company's ability to attract new licensees and to enter into agreements for additional applications with existing licensees; the Company's ability to maintain a competitive position in the development of technologies and products in its areas of focus; and business and general economic conditions. 12

PART II - OTHER INFORMATION Item 1. Legal Proceedings. None. Item 2. Changes in Securities and Use of Proceeds. On August 7, 2000, the Company sold 396,946 shares of its Common Stock for $13,000,000 to Motorola, Inc. The Company relied on Section 4(1) of the Securities Act of 1933 for an exemption from registration of such securities. The purchaser represented its intention to acquire the shares for investment purposes only and not with a view to distribution thereof; in addition, a restrictive securities legend has been placed on the certificates representing the shares. Cumulative use of proceeds through the period ended June 30, 2000. (1) Effective Date: March 3, 1998 SEC File Number: 333-43217 (2) Offering Date: March 3, 1998 (4)(i) The offering has terminated; all securities registered were sold. (4)(ii) Managing Underwriter: John G. Kinnard and Company, Incorporated (4)(iii) Title of Securities: Common Stock (4)(iv) Amount Registered: 2,300,000 Aggregate Offering Price: $17,250,000 Amount Sold: 2,300,000 Aggregate Offering Price Sold: $17,250,000 (4)(v) Underwriting Discount and Commissions $ 1,293,750 Other Expenses $ 435,148 Total Expenses $ 1,728,898 All the above items represented direct or indirect payments to others. (4)(vi) Net Offering Proceeds $15,521,102 (4)(vii) Use of Net Offering Proceeds: Research and development $ 2,147,000 Sales and marketing $ 1,341,000 Property and equipment upgrades $ 7,700,000 Patent protection $ 198,000 Working capital and general corporate purposes $ 928,000 Administration $ 155,000 Money market funds $ 3,052,102 All the above items represented direct or indirect payments to others. 13

Item 3. Defaults Upon Senior Securities. None. Item 4. Submission of Matters to a Vote of Security Holders. None. Item 5. Other Information. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits - 27 Financial Data Schedule (b) Reports on Form 8-K - A report on Form 8-K dated July 6, 2000, was filed on July 12, 2000, reporting under Item 5 the issuance of a press release announcing a licensing agreement with Motorola, Inc.'s Biochip Systems unit. 14

SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SurModics, Inc. August 14, 2000 By:/s/ Stephen C. Hathaway Stephen C. Hathaway Vice President & CFO (Principal Financial Officer) 15

Exhibit Index Exhibit Number Description -------------- ----------- 27 Financial Data Schedule

5 1,000 U.S. Dollars 9-MOS SEP-30-2000 OCT-01-1999 JUN-30-2000 1 1,326 12,825 1,401 40 562 17,004 11,909 4,806 35,242 1,904 0 0 0 391 32,822 33,213 3,648 12,755 1,340 9,359 0 0 0 4,315 1,607 2,708 0 0 0 2,708 .35 .33